THE BASIS OF STRATEGY: STRUCTURE

Introduction --definition ‘Structure’ is the allocation and control of work tasks

This implies power relationships based on the acceptable of managerial power by subordinates and
society – which Max Weber called its ‘authority’.

All organizations have some form of structure, based on “the established pattern of relationships among
the individuals, groups and departments within it”.

There are two structures – a vertical structure of authority and responsibility where clear limits of
financial authority exist, and a horizontal structure of groupings of activities designed to use the resources
towards goal-attainment.

The horizontal structure can be changed from time to time, to suit the environment (see later sections on
the internal and external environments).

The basic vertical of structure of an organization is a relatively static framework within which processes
such as communication, leadership and decision-making take place.

In most organizations, structure will be illustrated in the form of a chart.

Advantages of a functional structure

 Specialized resources are used efficiently.

 Quality is enhanced by other specialists from the same functional area.
 Opportunities exist for extensive division of labor.
 A career structure enables people to advance within their functional specialism.
 It is easier to manage specialists if they are grouped together, especially when the manager has
the same experience.
 It fosters communication between specialists and enhances the development of skill and
knowledge.
 It does not duplicate specialist resources throughout the organization and promotes economies of
scale.
 It is suited to conditions which stress functional specialism, where the environment is stable, and
when the technology is routine, requiring little interdependence between departments.
 Disadvantages of a functional structure

Increased need for interdepartmental co-ordination and scheduling Communication, co-ordination

overloads the vertical hierarchy.

 Inefficient co-ordination of functional departments.

 Responsibility for overall outcomes is unclear.
 Interdepartmental conflicts.
 Little creativity and innovation.
 Difficulties in identifying profitable and unprofitable products.

These problems are likely to occur with professionalism and a role culture where job
demarcations are felt to be important. When the reaches a certain size, they are likely to be exacerbated
especially if it has developed a wide range of product or services. Burns and Stalker (1961) devised the
term ‘mechanistic’ for firms where the interconnections are strong as they are unsuited to changeable
environments and non-routine technologies.

A more flexible and responsive form is needed than the rigidly functional by adopting a holding
company or a divisional structure in which profits centers based on particular products or geographical
areas are created.

Divisional structure

A divisional structure (see Figure 2.2 on the next page) can help to overcome the limitations of
the holding company and/or a functional structure, as it contains within its functional specialists but
groups its activities around products or geographical regions. These two ways of grouping activities are
supposed to ensure a closeness to the customer which is not really possible in a functional structure.

Advantages of divisionalisation

 It provides excellent co-ordination across functional departments.

 Since departmental units are often small, as well as self-contained, employees identify with the
product or project rather than their own function.
 Since each division can, for example, react to customer requirement, it is well suited to
changeable environments.

It is particularly useful for large s. Cellular manufacturing can even be considered as a kind of
internal divisionalisation with an emphasis on internal customers, just-in-time links between different
“products” and the dynamism created through teamwork.

The emphasis on profit centers, should promote clear accountability, longer planning horizons,
and the development of future senior executives with general management experienced as divisional
leaders.

Example: Alfred Sloan (1965) developed a true divisional structure for the disparate firms owned
by General Motor Corporation in the 1930s, bringing together a central function to garner expertise from
the different firms such as Pontiac, Cadillac and Chevrolet. GM ‘leap-frogged’ over Ford, who had a
functional structure, and has kept its lead ever since.
Disadvantages divisionalisation

 There may be a costly duplication or resources across departments.

 Specialists may become isolated and fail to further their specialist skills.
 Competing demands on people may create stress.
 Co-ordination across divisions is difficult.

Tension between the centre and divisions is a crucial problem of control. Too much control stifles
innovation Divisional CEOs gain too much power and can introduce wild excesses of spending on
favored ‘pet’ projects Example: In Rolls-Royce the RB211 engine project overruns nearly bankrupted the
company.

Product structure

People and resources are grouped according to an organization’s products. General Motors, has a
specific product- Chevrolet, Cadillac, Pontiac.

This enables technical excellence and concentration on fewer product lines, and a liaison with a
smaller set of customers, realizing more creativity in marketing and sales through focus, teamwork and
goal consensus. This format is used most successfully where there is a variety of products, each
addressing different markets.

Geographical structure
 Where oranizations have few products, such as IBM, they may group activities according to sales
area and be literally closer to the customer.

This enables regional differences to appear in marketing research. In this way IBM gets to know
the details of the businesses in an area and its sales team focus on local contacts example, meeting senior
people from potential clients informally at the golf club or race track.

Matrix structure

Divisionalisation may eventually have to be adapted to include formal mechanisms to promote

closer inter-divisional collaboration: the results will be a matrix structure in which vertical and horizontal
formal relationships are recognized.

A matrix structure seeks to add flexibility and lateral co-ordination to the traditional vertical
hierarchy.

One way of doing this is to create project teams made up of members drawn from a variety of
different functions or divisions: each individual then has a dual role, as he/she maintains
functional/divisional responsibilities as well as membership of the project team.

Example: US President John F. Kennedy demanded ‘a man on the moon within 10 years. The
achievement of this goal was apparently due to the new structure NASA adopted to link the functional
specialists in the background departments intimately with the problem-solvers on the construction and
research and development team for the Apollo mission. This mixture became known as a ‘matrix’.
Advantages:

 Improves decision-making by bringing a wide range of expertise to problems that cut across
departmental or divisional boundaries;
 replaces formal control by direct contact;
 assists in the development of managers by exposing them to company-wide problems and
decisions;
 improves lateral communication and co-operation between specialists.
 Suits rapidly changing environments because the equal balance of power between functional and
product management aids communication and co-ordination.
 Facilitates adaptation to unfamiliar and unexpected problems. People can be flexible relocated
across products or projects, aiding the speedy implementation of new ones. Employees have the
opportunity to develop either functional original management skills.
 It is useful for medium-sized organizations with a medium number of products or for task-
centered organizations.

Disadvantages:

 A lack of clear responsibility;

 Clashes of priority between product and functions;
 Functions lose control of the psychological contract;
 Career development can often be stymied;
 Difficult for one specialist to appraise performance of another discipline in multi-skilled teams;
 Project managers are reluctant to impose authority as they may be subordinates in a later project;
 Employees may be confused by reporting to two bosses;
 Managers will need to be able to resolve interpersonal frictions and may need training in human
relations skills;
 Managers spend a great deal of time in meetings to prioritize tasks.
 The complexity of the matrix structure makes it difficult to implement successfully.

Indeed, some commentators are very critical of this form of, and question whether it should be
adopted at all.

COMPLEX FORMS OF ORGANIZATION

Definition:

The complex forms attempt to overcome the inadequacies of other structures through
collaboration between existing organizations.

Explanation

Why? These pressures are essentially economic and in response to Japanese and Pacific Rim,
Chinese and Indian penetration of Western markets. At the same time globalization means that scale
economies are necessary to maintain price differentials and so mergers of parts of businesses where there
is strategic fit is becoming commonplace.
 How? Increasingly organizations are forming complicated vertical and horizontal relationships
through demergers, downsizing, delayering and margin retreat from product scope and geographical
spread.

What? Such organizations would range from co-operatives between organizations and their
suppliers, to all forms of partnership and alliances in which co-ordination of resources was based on co-
operation between the parties concerned.

Mergers are form of complex organization often defensive in nature.